Bitcoin Forum

Nick Szabo recently spoke on the Israel Bitcoin Summit in Tel Aviv University, and he said that,


Let's pretend that central banks or the different states around the globe started holding large amounts of Bitcoin, but the block rewards are not enough to support the miners anymore after several halvings. Wouldn't it force the central banks or the state to keep the network going by mining at a loss, but subsidized by the government?

Tell me what's wrong with that logic.

Or... the difficulty will fall and anybody with an antminer s9 or below (maybe even gpus will provide more hash than s9 by then) will be mining just like it was designed to happen. If the industrial miners leave, then home miners will take over.

Governments want to replace the industrial miners? Fine by me it can't be worse than what it is now.

Mining efficiency always improves when newer technology is released, also renewable fuel might be more affordable to mine with so we could still have industrial miners in that situation

Subsidizing the mining parties would be good but that is if the central banks around the world are holding bitcoins. As we all know that central banks are holding money not bitcoins. They are just supporting bitcoins but not through subsidizing the miners. As we all know that governments has no control over the cryptocurrency system since it is still developing and needs approval from the government.

Reward incentives wouldn't be sufficient for the miners should the value of bitcoin stop appreciating, that is, and if governments adopt bitcoin into their financial system, whatever the role of bitcoin is, they will mine the said coin in order to keep the network alive so as to protect bitcoin in their disposal.  It's quite improbable that miners would mine at a loss, given that each batch of miners the manufacturers are selling are priced according to what the current value of bitcoin is, so the governments who are doing the hashing wouldn't really mine at a loss if the price don't stale in the long run.

The part in bold is what is wrong with your logic. As long as the block reward is greater than 0, it will always be enough to support mining.

the foolish mindset is when block rewards half. income halves
guess the OP has not done the research on mining:market dynamics.

in the foolish theory of bitcoin being stagnant at say $4k for 100 years (16 years of importance) would be where miners would really want to push fee's up or they will just not mine as much

but while rewards are at play as the main income. the price will move to take into account the halving

...
then comes the foolish notion of a government/bank using bitcoin as a reserve. its foolish because a bank/government will have hyperledger as their backbone of their own reserve currency(s). so its not a thing to think bitcoin will become a bank/government reserve

but essentially if the deflationary nature and the mining:market dynamic were not at play (which the OP theorises) then people just mine less. difficulty drops and it then becomes profitable to mine more easily.

in short government/banks wont subsidize bitcoin.
seems the OP thinks bitcoin would become a "one world government reserve" because he thinks that because his buddies told him so, must make it true.

OP needs to do some proper research and run real scenarios.

Halvings are irrelevant as long as fee revenues sustain the network. This requires scarcity of block space. Even if block rewards are falling, profitable mining should sustain via downwards difficulty adjustment. We just need fee revenues to rise enough that hash rate doesn't experience a death spiral where it becomes completely insecure from block reorganization attacks.

If Bitcoin were dependent on external subsidies to sustain loss-making mining operations, it would be a failure. Either the economic design works, or it doesn't.

Why does it only apply to central banks? Any whale can have the same incentives to mine at a loss to protect their investment. This loss can even be partially mitigated by the deflationary nature of Bitcoin - its price is supposed to increase over time because of the fixed supply.

you are also missing another important factor and that is WHEN the governments are going to do this. they won't do it as long as bitcoin is pretty small, has highly volatile price and a very manipulated market that is out of their control. they will think about doing it only when the price has become more stable the manipulations become less effective because of the bigger size of the market. or in short when mass adoption has occurred. by then the price is high enough to support mining while the block reward is small.

Hashing power follows the price, and if the price is low enough then it might put the network in a less-secure situation, and more open to 51% attacks, because unprofitable miners will leave.


I agree it's debatable. But some governments could start holding Bitcoin, a censorship-resistant cryptocurrency, not some centralized hyperledger coin, to avoid sanctions from the United States government, as an investment, or whatever the reasons may be.


That's what I'm doing. I need the opinions of smart people such as yourself. 8)

Because I believe only the government can mine at a loss forever, all the expenses will be subsidized by the tax payers.

Tell me if that scenario is completely impossible.

hashing power COSTS is a separate value that sits below the price.
PRICE is speculative above hashing power costs. its why for majority of 2018 when hashing power costs were $5800 the PRICE never went below that.
then in OCTOBER when asic farms sold off asics cheap, thus reducing the hashing power cost as new more efficient asics were entering the arena.. the PRICE in NOVEMBER occured

majority of miners do not increase their hashpower when the price moves up. hense why there was no large hashpower rise in the january period of 2018
majority of hash power rises when they deem fit to rise. and then the mining:market effect plays out

the mining:market dynamic has been something known about for nearly a decade in btc and for centuries in the mineral/metals markets.

if it costs $1 to make. no one will go to a market and buy it for $100, unless getting it from the market has a $99 convenience feel that makes it FEEL worthy of paying extra

if it costs $100 to make. no one will mine it if they can buy it for $90, unless getting it from mining has a $10 convenience feel that makes it FEEL worthy of paying extra

if you chart mining cost vs price of summer 2018 you will see EFFICIENT mining cost of $5800. which is why before the october s9->s15 hashdrama .. no one sold below $5800 as that was the underlying support of the mining:market dynamic
th price only moved down when it was cheaper to mine
(no im not talking about hobby miners in thir basement on 10cent-20cent electric who paid full price retail for asics im talking the majority of miners (who are smart/resourceful to get cheap electric and cheap asics))


governments wont hold btc. they have a contract with banks to keep fiat in play. this is why governments are working with banks to make hyperledger.
hyper ledger is the united committee of banks and governments.
governments dont even hold gold.

governments do not create fiat. banks do. governments ask banks for fiat and then give the banks back returns plus interest
you need to research more into bonds (credit agreements essentially)
governments do not have an endless money pit.

the 2008 crises is where governments did not make fiat to pay bank bailouts. what actually happened was that governments asked banks to create their own fiat. where for minutes. banks gave fiat to government and then government gave it back to the bank(like how mortgages work) and the government will then pay the bank interest for the next couple decades
you need to learn more about the whole promissory note(bonds):credit agreement/mortgages of how fiat is created

but in short. hyperledger is not some altcoin script kiddy venture. hyperledger is the bank/government R&D project for their own currency system(s)

Either way, it sounds like a temporary band-aid on an unsustainable system.

I don't see how this situation could arise anyway. Why should anyone regularly mine at a loss? Even if fee revenue is low, difficulty should always adjust downwards as unprofitable miners are pushed out of the market. There's always going to be entities with free electricity or spare CPU/GPU computing power, if it comes to it.

The bigger problem for central banks at that point is that Bitcoin would be worthless, based on the mining dynamics. The above situation exhibits extremely low demand for Bitcoin...

I looked into this, and the debates and arguments were mixed. The miners simply don't control the markets, and the markets the miners.

It might make a good, interesting study for "Bitcoin scholars".


I believe there's a non-zero chance that governments will in the future. The Bank of England's denial of Venezuela's bid to get its gold back is a fine example that governments need a form of true trustless, sovereign asset ownership.


I did not say that. I said it's the governments who have the capability of maintaining Bitcoin mining at a loss, because they can tax the people to pay for the costs.


Is it censorship-resistant?

    Bitcoin is a decentralized electronic cash that is the government or the bank has no interference with this decentralized  cash transactions or dealings  .The crypto revolutionist introduced.Bitcoin to destabilize and undermine governments .The truth is that the government cannot manipulate the circulating supply of Bitcoin .Since Bitcoin is a peer to peer form of circulation the government cannot freeze the account or steal them .the government around the world don't want a currency that has a limited amount of supply  the volatility of Bitcoin.is influenced by regulations , politics and by the changes in technology 2017 was a record market capitalization for Bitcoin to my assumption ..

First of all the Swiss Government is trusted so much because they have proven their reputation over decades and their business is resilient to any political and military conflicts. Personally, I don't see any reason why they should give up now and loose everything.
Also, nothing tells us that any major country is going to use BTC as a reserve. Why? There is plenty of safer ways to invest money and a government supposed to pick safer ones to be resilient to significant BTC rate changes.

I think it would, but this situation won't happen, since banks holding Bitcoin would mean much bigger prices, and this would mean that miners still get enough rewards. Moreover, if some miners don't feel that the business is worth it, they can just leave the market. The difficulty rate will adjust rather fast, and mining will still be profitable for those who stayed. Moreover, the price and miners are not directly related, by the way. Sometimes this logic fails us, and mining can keep going without being profitable. I don't think the govs would subsidize mining in the end.

First of all, it's extremely hard to see bitcoin gaining that kind of support from central banks and governments any time soon.

The precise nature of bitcoin makes it able to be run without any intermediaries, which is the exact reason why it was created in the first place. There isn't a need for government subsidisation to keep the network running, because even when there is no block rewards, miners are able to have incentive to mine because a) transaction fees still contribute to the rewards they get to keep the network running b) the price of bitcoin would have likely appreciated significantly at that point due to the increased scarcity.

To answer your question, it's a simple no. It's unrealistic to assume that the government or central bank would ever have such a positive attitude towards BTC in the first place, and BTC certainly does not need their intervention to survive in the future. After all, it's a decentralised network.

Gold has been used for such a purpose but who wants to move all that gold around when bitcoin does the same thing with much easier logistics

State-subsidized mining might be the next step for state-level actors. I already told everyone before that Bitcoin will become a world reserve currency. It's happening

https://pbs.twimg.com/media/D_W-zUTXYAEi4wL?format=jpg

The world will be in a situation that state-level actors, in order to "win", will have no choice but to mine, trade, hold, and be involved in Bitcoin.

Buy the dip, and HODL. 8)

Another step towards state-level actors moving closer to mining Bitcoin themselves. An Iraninan government minister was quoted saying that "the state shouldn't subsidize cryptocurrency mining", but I believe they will at some stage, eventually. 8)

https://www.reddit.com/r/Bitcoin/comments/cguboa/iran_officially_recognizing_cryptocurrency_mining/

BUMP.

Bitcoin in Iran has become interesting. The government of a country, with a surplus of oil and natural gas, has made cryptocurrency mining legal, with miners required to sell the only Iran's Central Bank?

It's happening?